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CTA. 2003. Decoupling explained. Agritrade, July 2003. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/52450
In a paper submitted to the Annual World Bank Conference on Development ...
In a paper submitted to the Annual World Bank Conference on Development Economics in Paris on May15-16th 2003 the experience of decoupling farm aid payments in the USA, EU, Mexico and Turkey was reviewed. The paper starts with a review of the impact of current agricultural support programmes which stimulate overproduction and depress prices, which in turn requires higher levels of support. It points out that most of the benefits of these support programmes are captured by large farms and input-supply industries. It highlights the international spill-over effects of domestic support policies, which either reduce imports or expand exports 'lowering world prices to the detriment of competitive suppliers elsewhere. This it argues needs to be seen against the background of 'the long-term trend of agricultural productivity growing more rapidly than demand' which 'implies continued adjustment pressures at the global level, with agricultural support simply shifting the burden of adjustment to other non-subsidizing countries'. It is against this background that decoupling is then considered. The major argument for decoupling is that 'budgetary payments that are decoupled from agricultural activity altogether would transfer income to selected households most efficiently' so that the 'economic distortions and distributive leakages are thereby minimised'. The benefits of this are 'reduced costs to consumers and taxpayers, improved trade opportunities for competitive suppliers, less stress on the environment and more effective policies to achieve goals'. In reviewing the overall experience of decoupling to date the paper concludes that the results have 'not been encouraging'. It argues that the ideal form of decoupling would be across the whole of the agricultural sector and describes sector-specific decoupling as the third-best option, although it would be a move in the right direction. It argues that if decoupling is not to become simply another subsidy programme it: should be in the form of taxpayer-funded payments that should not require production. Indeed, 'land, labour or any other input should not have to be in agricultural use'; should have eligibility rules that are clearly defined and unchangeable; should not exist in parallel with coupled programmes of support, since these provide incentives to overproduction; should have time limits on the life of the programme; should feature farm payments whose level, both in aggregate and per farm, should be bound at the WTO. Comment: The paper's exploration of the different definitions of decoupling in use suggests that it is very important for ACP countries to actively participate in debates around decoupling in the WTO in order to avoid 'dirty decoupling', that is decoupling which continues to massively distort international trade.